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Economics Investing Test Module 9 Answers

1. ________ are typically comprised of a mix of ________ and ________.

c. Mutual funds; stocks; bonds

2. If an investment is considered "volatile", it means...

b. the value of the investment may be hard to predict.

3. Why might a town decide to issue bonds?

b. To build new roads or bridges.

4. Diversification is important in investing because...

a. It helps you to balance your risk across different types of investments.

5. Why is a high-quality bond typically considered a lower-risk investment than a stock?

a. A bond typically pays a fixed, predictable amount of interest each year.

6. Which of the following would be considered the highest risk portfolio?

c. A portfolio made up of 60% stocks, 30% mutual funds, and 10% Treasury bonds.

7. Which investment type typically carries the least risk?

c. Savings Accounts

8. Which of the following is generally true about 401(k) and 403(b) retirement plans?

d. All of the above

9. When might be the best time to start saving for retirement?

c. At the earliest possible date.

10. How can investors receive compounding returns?

b. By investing their earnings back into their original investment

11. What are dividends?

c. A distribution of a small percentage of profits to shareholders.

12. When you buy a ____ , you are loaning money to an organization.

b. Bond

13. What happens when a bond becomes due?

b. The issuer will pay you back, plus interest.

14. Which best describes the difference between stocks and bonds?

b. Stocks allow investors to own a portion of the company; bonds are loans to the company.

15. Generally speaking, the _______ the risk, the _______ the potential return or loss.

b. higher; higher

16. What is the primary reason to issue stock?

b. To raise money to grow the company

17. Which type of portfolio might a young investor who is not afraid of risk choose?

a. A portfolio of with a high percentage of stocks.

18. When it comes to investing, what is the typical relationship between risk and return?

b. The greater the potential risk, the greater the potential return.

19. If an employer does not offer a retirement plan, what might be another way to save for retirement?

d. Both A and B

20. Which of the following correctly orders the investments from LOWER risk to HIGHER risk?

c. Treasury bond − Diversified mutual fund - Stock

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